Defendants lose out as judges insist on strict interpretation of part 36

Judge McKenna: defendant had “means and opportunity” to protect itself

Defendants have failed in two separate recent attempts to persuade courts to interpret the part 36 costs rules in a way that suited them.

In the first case, the High Court ruled that a defendant NHS trust must pay full costs under the “separate, self-contained” part 36 rules, even though the claimant had acted unreasonably.

HHJ McKenna, sitting as a High Court judge in ABC v Barts Health NHS Trust[2016] EWHC (QB), said the defendant had “the means and opportunity” to protect its position on costs through the part 36 offer it made, but failed to do so.

The claimant, acting with the aid of his wife and litigation friend, sought damages of over £1m, plus an annual payment of £230,000, for delay in surgery, resulting in a stroke.

A part 36 offer of £50,000 was made in June 2015 but only accepted in February this year. The offer was expressed to be a settlement of the whole of the claimant’s claim.

The claimant argued that there was no reason to depart from the “usual order” under CPR part 36.13(5), and that it should be awarded its costs up to expiry of the offer in June, and then pay the defendant’s costs.

The defendant submitted that such an order would be unjust because it failed to reflect that the claimant had “failed in relation to the vast majority of his pleaded claim” and argued that the claimant’s costs until June 2015 should exclude costs relating to causation, which gave rise to the “overwhelming” issue in the claim.

Judge McKenna said it was common ground that part 36 was a “separate, self-contained code” which must be applied as such.

“Moreover, the court’s discretion to depart from the usual order is constrained by the precondition that its full enforcement would be unjust.”

The judge said: “The difficulty with the broad thrust of the defendant’s submissions as it seems to me is that the defendant had the means and opportunity to protect itself in respect of the costs that it was going to have to incur in respect of the causation issue but chose for whatever reason when making its part 36 offer to frame the offer as a settlement of the whole claim and then subsequently when that offer was not accepted did not make any revised offer excluding causation.

“True it is that in rejecting the offer and pursuing the action up to or close to trial the claimant acted unreasonably, but part 36 expressly provides an effective remedy to cater for that very situation in that the claimant will have to pay all the defendant’s costs incurred post expiry of the part 36 offer and in the circumstances of this case it seems to me that the assessment of those costs should be on the indemnity basis.

“To my mind, there is nothing unjust about making the usual order in the circumstances of this case, accepting as I do, the thrust of the claimant’s submissions on this issue.”

Judge McKenna ordered that the defendant pay the claimant’s costs up to June 2015 on the standard basis and the claimant pay the defendant’s costs from expiry of the part 36 offer until acceptance in February 2016.

Meanwhile, in a ruling at the Court of Appeal last week, Lord Justice Briggs rejected the “absurdity” of adding together the amount of a part 36 offer and a payment on account to produce a larger sum than the claim and the amount awarded.

Briggs LJ said the “admissions payment” on account should be regarded as “part payment in advance of the £35,000 that would have been due and payable to the claimant if, thereafter, he accepted the part 36 offer”.

The judge said this approach would do “no violence” to part 36.11(6), which was “plainly not intended” to deprive the defendant of the benefit of a “part-payment made on account, after admissions, between the making of a Part 36 offer and its acceptance”.

The court heard in Littlestone and others v Macleish[2016] EWCA Civ 127 that the case involved a dispute between a landlord and an unnamed law firm over repairing obligations in the firm’s lease.

Delivering the leading judgment, Briggs LJ went on: “There is nothing inconsistent in a defendant both wishing to encourage settlement by making an offer to settle the whole claim, then making one or more smaller payments outright pursuant to admissions, while leaving the part 36 offer open for acceptance throughout.

“The continuing offer encourages settlement while the admissions payment narrows the issues. There is no reason why the admissions payment should be intended to improve the value of the offer to settle the whole claim. It is made for a different purpose.”

Briggs LJ dismissed the defendant’s appeal, and allowed the claimant’s cross-appeal that costs should have been awarded on the indemnity basis because this was provided for under the lease.

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